Rishabh Mariwala On Sharrp Ventures’ Journey From Investing In Funds To Directly Backing Startups

“Being an entrepreneur is great, but I also feel it was restrictive for me. There’s so much happening in the world and I wanted to be a part of all of this innovation, not just focus on one business,” – Sharrp Ventures cofounder and director Rishabh Mariwala

It was in 2015 that Rishabh Mariwala decided to go from an entrepreneur managing Marico’s in-house brands to leading the Mariwala family office, leveraging the profits and revenue generated by the FMCG giant. “I saw that we could offer greater value to the wider ecosystem, instead of pumping back the money into Marico and other companies,” Mariwala told Inc42.

With Marico Inc’s profitable business as the lynchpin and corpus source, Sharrp Ventures has diversified from safer bets in listed companies to backing venture capital and private equity funds and then directly into startups.

Marico, one of India’s largest FMCG companies, recorded an annual turnover of over INR 9,500 Cr in FY22 alone. And while in 2015, when Sharrp Ventures was founded, the group’s turnover was half of what it was in FY22, it was in an enviable position to have a greater say in the startup ecosystem. And that’s how Sharrp Ventures came up.

Rishabh recalled that if Marico wanted to evolve and be ready for a tech-first world, it would have to diversify from traditional FMCG investments to backing D2C brands and even invest in funds that are funding new-age businesses across sectors. The fund has seen an 66% IRR from unlisted investments, with key deals such as Nykaa (partly exited), Sleepycat, Mamaearth (Honasa), Healthkart, Bira and MCaffeine among others. Most recently, it participated in the $3 Mn round for lifestyle brand Zouk along with Stellaris Venture Partners, Titan Capital and other investors.

And in recent times, it has backed venture funds such as Fireside Ventures, A91 Partners, Blume Ventures among others as an LP.

What sets a family office apart from a traditional VC fund or other class of investors is that they invest from an internal corpus rather than managing capital invested by limited partners. Speaking to Inc42 for the Moneyball series, Mariwala says that unlike a VC fund, a family office offers a lot more flexibility and the liberty of taking bolder calls that may be out of the ambit of the main business. But as a fund that invests in other funds, listed companies and also directly backs startups, Sharrp Ventures looks at the startup ecosystem much differently than VCs.

So is Sharrp’s focus on LPs and direct investments largely about portfolio diversification and hedging risks? And with its portfolio of IPO-bound companies, growth stage startups as well as listed companies, what is Mariwala’s view on exits in 2023?

Edited excerpts…

Inc42: Firstly, we wanted to understand how Sharrp Ventures approaches diversification given that you have a portfolio of listed companies, private startups and also invest in funds? 

Rishabh Mariwala: Even though Sharrp Ventures has been around for over seven years, things are always changing and we want to be in a position to take advantage of all opportunities.

I think if I were to look at the advantages of running a family it is the flexibility, so because it’s my own capital, I can choose to take contrarian bets. So tomorrow, if there’s a pre-IPO round which we find has value, then we can invest there too. But an average VC fund — say an early-stage investor — cannot break from their thesis to make pre-IPO bets. Plus, I have the luxury of longer time horizons compared to funds.

Having said that, we are still in the learning phase as far as direct investments are concerned, which is why we have investments in funds and listed companies, which helps us have a balanced exposure.

When we started, up to 90% of our investments were in the listed or public market space, with just 10% in private investments. Over a period of time, we have found success in private or unlisted space as well. Today the mix is 60:40 in favour of public market investments.

For us, as a family office, the key decision is asset allocation. Given my risk-return profile, we focus very sharply on where we should invest the capital. Listed bets are less risky and we are guaranteed a return to some extent, but startups are more risky and offer a bigger upside. So that’s our side of investing in startups.

Now, as an LP, we are very keen to invest in funds that have a specialised focus, where the fund managers know the ins and outs of a sector better than we possibly can. Some of these funds have been around for longer than Sharrp so they have stronger views on certain bets. That’s why we believe that being an LP is also crucial.

 

Inc42: Give us an idea of how your focus has shifted from being an LP to investing directly in recent years. And when did you decide to focus more on direct investments? 

Rishabh Mariwala: Over the last eight years, we have made 17 investments in funds as an LP and 23 direct investments (including exits). So it’s a healthy split right now, but when we began, most of our focus was on investing in funds and getting a piece of the startup boom through these funds.

At that point in time, the number of funds we were backing was much higher, because to be honest, we were learning. I firmly believe that when starting something new, you should dip your toes in the water rather than jumping in with both feet. If you don’t know much about a space, it’s better to take your time rather than thinking you will miss out and going all-in.

So most of our learnings at Sharrp have come from the funds we invested in. And then, after our first four or five years, we ramped up direct investments. We have a team in place now that is similar to other funds and we also have the luxury of a steady corpus.

Of course we have simple business reasons to also reduce our focus on fund investing. One is that I’ll get more IRR from directly investing in startups, or else I am paying fees on fees when I am investing through funds.

So now that we have a team under me, why shouldn’t we directly source deals. After all, I can do what a fund does — deal sourcing, evaluation, closure and then tracking the performance of my investments. We have now got a good idea of how it works end-to-end.

Inc42: Even though you have decided to reduce your focus on fund investments, could you explain how you evaluated funds before investing in them? Is this also  about risk diversification or are there other metrics you use?  

Rishabh Mariwala:  It has evolved. When we began we wanted to have our capital in funds across categories and stages. But as we have grown and matured, we are looking for funds that are proven and focussed.

We have also invested in first-time fund managers or funds that come from partners at proven funds like A91 Partners. What we want is the institutionalisation piece. So we don’t want a single fund manager making all the calls. We like to see a team of three or four partners that have complementary and varied skill sets that can add value to the investments they are making.

More importantly, we talk to the entrepreneurs they have backed or are looking to back. We definitely want a stage or sector focus, but we also need to know that beyond this, they can do some heavy lifting for their portfolio companies.

Of course, we cannot ignore the VC metrics like IRR, exit track record, MOIC (multiple on invested capital) etc. But there’s a bigger focus on competencies and value addition.

In this day and age, if you’re just writing a cheque, you are not adding any value to the startup. An entrepreneur appreciates when you go beyond the capital and our direct investments are also being shaped by this need. When you talk to the entrepreneur about a fund, it says a lot about the fund manager and we can sense a lot more about the fund when we are in the diligence stage.

We have had funds who have been upset with us for asking too many questions, and others who are grateful for our questions because they like the maturity in a domestic LP such as us. We are lucky to be in a position where my father has built this business, but that flexibility does not mean we don’t have to respect the capital we invest.

Inc42: Do you think being an LP gives you a competitive edge when investing directly? You obviously know a lot more about the sectors thanks to the data you get from the funds. Does it ease or complicate your evaluation criteria for direct bets?

Rishabh Mariwala: One clear advantage is the information asymmetry that we can leverage. We know about sectoral data and market reception thanks to the information we get from every single fund and that helps us make the right call in our direct investments, wherever there is overlap.

We are sitting in a very unique position because we have got multiple data points and so we can triangulate where the industry or certain sectors or subcategories are going. In our fund portfolio, we have pre-seed, seed, Series A, growth stage and even late-stage like pre-IPO funds.

So the other thing is we have taken these bets across the ecosystem so that we are participating in every stage of the journey for various companies. This helps us arrive at a favourable IRR on an average. We balance the late-stage funds where I have a lower investment with our early stage funds that offer a higher IRR. By betting on the right fund manager, we get the alpha or the excess return to balance the bets that don’t work. That’s the other big advantage besides the information that we get.

Inc42: Lastly, I wanted to touch upon exit strategies in 2023? You obviously have Nykaa in your portfolio which is now listed, and then there’s Mamaearth which is looking to list. How have you firmed up your exit strategies for such late-stage bets over the years?

Rishabh Mariwala: More than exits, I think what has changed is how we make bets. The pace of investments has slowed down and the burden of diligence has gone up as well because you know there are some well-publicised issues of corporate governance. Today, founders have to show us what they are gonna do going forward, what mistakes they have made and how they plan to rectify that going forward.

So the question of whether we are betting on the horse or the jockey is a big factor in our decision making today. Earlier the decision was more skewed towards the jockey, but as you know the market has changed so we also have to see whether the horse is capable of going the distance.

Now when it comes to exits, we can never say that this year will be all about exits. It’s an evolving view point and as our team has grown we have become better at making those decisions about exits.

Take Nykaa, for example, where we still have a stake. But we did sell part of our stake before the IPO. Even in Mamaearth, we sold some part of our stake in one of their earlier rounds, because we wanted to get back the capital we invested.

Even though now Nykaa is feeling that quarter-on-quarter pressure of being a public company, and its share price has been impacted, we have still not offloaded it completely. We evaluate whether the opportunity cost of staying invested is more important than investing the capital in something else.

We are getting more thorough in our exit making process and decision making today than we were two years back or a year back. It’s company specific but we’re definitely more prudent about what to do with our positions. We were not thinking about it on a quarterly basis, but we are getting more proactive in thinking about exits in 2023.